A Practical Guide to Wills and Trusts
Now that we have the basic vocabulary down, let’s explore the two main pillars of estate planning. Understanding what each tool does—and doesn’t do—is essential to making an informed choice. Many people ask, what is the difference between a will and a living trust? We’ll answer that by looking at each one in detail.
Understanding the Last Will and Testament
A will is the most traditional and widely known estate planning document. Think of it as a set of instructions you leave behind for your loved ones and the court.
What a Will Does:
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Distributes Your Property: This is its primary function. You can specify who gets what, from your house to your grandmother’s wedding ring. Without a will, state law (called “intestacy law”) decides who gets your property, and that might not align with your wishes.
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Names an Executor: You get to choose a trusted person or institution to manage your estate. This person will be responsible for a lengthy list of duties, so it’s important to choose someone who is organized, responsible, and trustworthy.
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Appoints a Guardian for Minor Children: For parents of young children, this is arguably the most important reason to have a will. You can name the person you want to raise your children if something happens to you. Without this, a court will make the decision, and it may not be the person you would have chosen.
The Process and Limitations of a Will:
A will only becomes effective after you die. To be legally valid, it must be signed and witnessed according to your state’s laws. After your death, your will must be submitted to the probate court. This is a critical point: a will does not avoid probate. In fact, a will is designed to be the instruction manual for the probate process.
Probate can be a long, expensive, and public process. Court filings are public records, meaning anyone can see the details of your estate—what you owned, who you owed, and who inherited your assets. For many, avoiding this process is a primary goal of estate planning.
Understanding the Revocable Living Trust
A revocable living trust is a more versatile tool that can accomplish everything a will does and more. Think of a trust as a special box you create to hold your assets. You put your property into the box, you manage the box while you’re alive, and you leave instructions for who should take over the box and who gets its contents when you’re gone.
How a Living Trust Works:
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Creation: You work with an attorney to create a trust document. In this document, you name yourself as the initial trustee (the manager) and beneficiary (the one who benefits). You also name a “successor trustee” to take over for you when you can no longer manage it.
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Funding: This is the most important step. You must re-title your assets (your house, bank accounts, etc.) in the name of the trust. For example, your house deed would change from “Jane Smith” to “Jane Smith, Trustee of the Jane Smith Revocable Living Trust.” The trust now legally owns these assets, but you still have complete control over them as the trustee.
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Management: While you are alive and well, nothing changes. You can buy, sell, and manage your assets just as you did before. Because it’s “revocable,” you can change the trust or even cancel it entirely.
The Main Advantages of a Trust:
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Avoids Probate: This is the number one reason people choose a trust. Because the trust owns the assets, not you personally, there is nothing for the probate court to oversee when you die. Your successor trustee can step in immediately to manage and distribute your assets according to your instructions, saving your family significant time, money, and hassle. This process is entirely private.
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Manages Assets During Incapacity: Unlike a will, a trust is active during your lifetime. If you become ill or incapacitated and can’t manage your own affairs, your successor trustee can take over immediately. This can prevent the need for a court-supervised conservatorship, which can be a costly and intrusive legal process.
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Offers More Control: A trust allows you to be more specific about how and when your beneficiaries receive their inheritance. For example, you could specify that a beneficiary receives funds in installments, at a certain age, or only for specific purposes like education or a down payment on a home.
What is the difference between a will and a living trust? A Head-to-Head Comparison
Let’s summarize the key differences:
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Probate: A will guarantees probate. A properly funded living trust avoids probate.
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Privacy: Wills become public record during probate. Trusts remain private documents, keeping your family’s financial affairs out of the public eye.
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Cost: A will is generally less expensive to create upfront. A trust costs more to set up and fund, but it can save your family thousands of dollars in probate fees and legal expenses later.
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Effectiveness: A will is only effective upon your death. A trust is effective as soon as you create and fund it, offering protection if you become incapacitated.
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Management During Incapacity: A will does nothing to help if you become unable to manage your affairs. A trust provides a seamless transition for your successor trustee to manage your assets for your benefit.
It’s important to note that even if you have a trust, you should still have a special type of will called a “pour-over will.” This document acts as a safety net, catching any assets you forgot to put into your trust and “pouring” them in after your death. These assets would still have to go through probate, but the will ensures they ultimately end up in the trust and are distributed according to its terms.
